Almost everyone uses a credit card at some time in their lives, but not everyone knows how they function. Unfortunately, this may lead to significant credit card debt if you make purchases without fully knowing how to handle credit.
How widespread are credit cards? It is estimated that 75% of the population in the United States does not own a credit card. With a population of 36.99 million, it implies the typical Canadian owns at least two credit cards.
Credit card management is a vital skill to have. Whether you’ve just applied for your first credit card or have been using them for years, it’s crucial to understand how they function, what happens if you don’t pay your credit card amounts in full, and how compound interest works. But the first thing to understand is the necessity of utilizing a credit card.
How Credit Cards Work
Credit cards are plastic or metal cards provided by financial organizations to qualified customers seeking a line of credit. Your best credit card is granted a credit limit, which is the maximum amount of money you may use to pay for products or services. You are effectively borrowing monies that must be repaid at a later date.
The terms and conditions paper contains the precise regulations that govern how a certain credit card operates, including limitations, interest rates, and fees.
Your credit history will also be reported to one of two credit bureaus: Equifax or TransUnion. You may enhance or keep your credit score if you complete your payments on time. Missing payments or exceeding your credit limit on your credit cards might hurt your credit score.
Advantages Of Using A Credit Card
Consumers in Canada have many options when it comes to credit cards, since hundreds of organizations, including banks, credit unions, and stores, provide credit cards with a variety of characteristics that may suit every profile and financial situation.
Internet Transactions
Having a credit card might help you get a better deal on the things you buy. Nowadays, you may get some of the finest offers online. In many cases, using a credit card is the sole acceptable method of payment for these online transactions. In addition to paying more for the same item you might have bought online if you don’t have a credit card, you could also have to drive farther to pick up the item.
Money Back
The marketing concept and strategy are brilliant. The concept was that if you used your credit card, you would have 1% of your purchases reimbursed to you in cash. With certain businesses, cashback percentages have even reached 5%!
You have a unique chance to spend your money wisely while also knowing that you will earn money back for each purchase you make.
Bonus Points
Credit cards are designed so that cardholders may accumulate one or more points for every dollar spent. Many reward credit cards provide extra points for certain types of purchases, such as dining out, shopping, or petrol. Through the credit card company’s online rewards site, points may be exchanged for travel, gift cards to shops and restaurants, or products after meeting specified earning requirements.
Your possibilities for credit card rewards are almost limitless. Choose a co-branded credit card issued in association with a hotel chain, a clothes store or even a charitable organization like AARP, and you may use your regular spending to accumulate points every day.
24/7 Accessibility
You always have access to your credit card. Even payment may be made through NFC, which is highly practical. Cash may run out, be lost, or be left behind at home. However, the bank has the right to share the card at any time of day even if there is no money on it.
It Makes Paying Bills Simple
You’re ready to go after you’ve set up pre-authorized payments for regular expenses like mobile phone bills, gym memberships, music or movie subscriptions, and charity donations.
No Liability Insurance
Zero responsibility is provided by Visa, MasterCard, and Amex for any illegal charges made with your credit cards. Therefore, your credit card issuer, not you, will be liable if a transaction appears on your card that you did not make, a merchant overcharges you, or a merchant fails to deliver the goods you ordered. Mastercard claims that “zero responsibility applies to each purchase you make with your credit card, whether it is made in-store, over the phone, by mail, or online.” Why use cash ever again?
Previous Purchases
A credit card provides you with a thorough and detailed breakdown of your monthly spending without the effort of documenting every transaction as you would have to do if you paid in cash, which is ideal for individuals who have trouble keeping track of their receipts. You may use this record as a simple tool to construct a budget and keep track of your spending. It may also be a great resource for charity deductions during tax season.
Safety Measures
You are more likely to discover any fraudulent payments or activity if you use a credit card. Payment processing might take a few days, which gives you time to spot any shady or fraudulent activity and correct it before it harms your credit score.
Insurance
The majority of credit cards come with a variety of consumer protections that most consumers are unaware of, including automatic trip insurance, rental vehicle insurance, and product warranties that may be longer than the manufacturer’s warranty. According to a study by the Bank of Canada, 9 out of 10 Canadians have a credit card. Canadians choose to pay by credit card, and transactions above $15 are considered especially popular. And every year more and more people refuse cash – because it is convenient, profitable, and safe.
Some Credit Cards Are Recognized Everywhere
The globe over, RBC credit cards are recognized everywhere. When you travel, it may be useful. You may sometimes get a sizable bonus on currency conversion owing to a Canadian credit card since your bank offers a significantly better exchange rate.
Establish A Solid Credit History
To get affordable credit to buy a house, vehicle, or other products you don’t pay for in full, you must have a strong credit score. Even some employers now do a credit history check to assess your risk and/or accountability. The greatest strategies to create, improve, and keep an outstanding credit score, particularly when you’re just starting, are to use your credit card responsibly and make your payments on time.
Conclusion
Disciplined people who can maintain awareness of their capacity to pay the monthly payment (ideally in full) on or before the due date are best suited to use credit cards. If you already know how to appropriately use a credit card, switch as many of your purchases to your credit card, and just use your debit card to access ATMs. If you do, you will have an advantage over customers who pay with a debit card, cheque, or cash because of the benefits, buyer protection, and value of cash in hand.
